How Retail Is Evolving In An On-Demand Economy
This post originally appeared on Forbes.com.
It’s been widely discussed that Amazon plans to enter the brick-and-mortar retail game. This is ironic because it is Amazon that put many brick-and-mortar retailers out of business in the first place. Circuit City, Borders and Blockbuster all succumbed to the dynamics of e-commerce and companies like Barnes & Noble, Sears and K-Mart aren’t too far behind. Big box retailers carry fewer product lines and holding inventory presents significant risks. Consider that in the last four years, cumulative sales of brick-and-mortar retailers shrank by $30 billion and as Jeff Jordan rightly points out, “these trends are only accelerating.”
In the past, brands would have to fight for shelf space and customer access and that gave power to the larger retailers. Today, anyone with a product and a website can build their own sales channel and that is creating enormous shareholder value for the digital players. This creates a new set of challenges for brands and retailers.
On one hand, building an online-only business has cost and distribution advantages. There is no need to invest in large amounts of inventory and you aren’t subjected to retailer buying terms or expensive overhead for rent. This is a large reason why companies like Bonobos and Warby Parker experienced success early on and why many brands looked to copy the online-only model.
On the other hand, having a physical presence has proven to drive sales with meaningful volume and be an effective channel to reach new customers. Take Quirky as an example. The company claims that brick-and-mortar retail partners are key to Quirky’s success, driving 85% of the company’s revenue, with the rest coming from online sales through Quirky.com, Amazon, ThinkGeek, Fab.com and other e-sellers.”
So the challenge becomes this: how do businesses leverage the benefits of a physical store while removing the challenges that are destroying brick-and-mortar retail?
One startup company thinks they’ve solved this problem by taking inspiration from successful businesses with marketplace dynamics like Airbnb. In just nine months, a startup called Storefront has created one of the largest online marketplace for brands, artists and designers that are in need of temporary retail space. This model allows brands to create engaging, physical experiences without taking on the overhead of long term leases that are putting so many retailers out of business. Imagine a future in which Fitbit is sold in gym lobbies across the U.S., IKEA is on college campuses during move-in week, and the hottest Kickstarter campaigns are available for pre-order or purchase at Best Buy.
Nick Roberston, CEO of the fast growing ASOS is thinking along these lines as well. “Being a digital fashion brand, it is important we never lose a digital element to what we’re doing, however based on consumer reaction and participation, I think we will be looking at more new and innovative ways we can get our brand in front of the customer for a physical experience in the future.”
Will a company like ASOS use Storefront? It’s very likely. Hundreds of brands have opened their own store and generated millions in sales revenue. And when you consider that 80% of all economic output takes place in urban areas, it further validates the idea that having a cost-effective physical presence makes a lot of sense.
From the New York Times, “whenever a city doubles in size, every measure of economic activity, from construction spending to the amount of bank deposits, increases by approximately 15 percent per capita. It doesn’t matter how big the city is; the law remains the same.” NYT
That law is quite compelling and Jeff Bezos knows it is. It’s perhaps part of the reason Amazon is opening a distribution warehouse in the densely populated tri-state area and why Jeff is quoted as saying that “We [Amazon] would love to [do physical retail], but only if we can have a truly differentiated idea.” Being closer to the customer creates better experiences and improves economic efficiencies. In the case of retail, maybe the “differentiated idea” is simply about getting to your customers, quicker, cheaper and more intimately than anyone else and having an on-demand storefront seems like a pretty powerful way to do just that.
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